How to Build Case Against Tenants Profiteering on Short-Term Rental Sites

The proliferation and popularity of short-term rental sites such as Airbnb have created vexing problems for owners. Due to these sites, it’s now quite simple, for example, for tenants to connect with travelers and attempt to sublet your apartments and make a hefty profit. Tenants can potentially turn your building into a hotel or hostel.

A case decided last year illustrates some of the evidence an owner may submit to successfully evict a rent-stabilized tenant [335-7 LLC v. Steele, August 2015]. In this case, an owner was able to successfully evict a rent-stabilized tenant from a three-bedroom apartment. The tenant had rented it to nearly 100 people from countries around the world, none of whom stayed longer than 10 days. According to the termination notice, she was charging $215 per night while the monthly legal regulated rent for her apartment was $2,693.08 (or $89.50 a night), and she “commercialized the subject premises and [utilized] the subject premises for illegal profit-making, short-term rentals at rates far in excess of any proportionate share of the legal regulated rent for the subject premises.”

Throughout the case, the tenant repeatedly referred to her Airbnb guests as “temporary roommates.” She testified that when she initially moved into the three-bedroom apartment in the West Village she had other roommates living with her but that over time they had moved on. When she couldn’t afford to pay the $2,693.08 by herself she decided to seek “roommates” through the Airbnb website.

Here’s how the owner built a successful eviction case against the profiteering tenant—and how you can do the same.

Get Manager and Neighbor Testimony

To bolster the owner’s case, the managing agent testified that in or around January 2011 he became aware of complaints from other tenants that strangers with suitcases, many of whom looked like European tourists, were coming and going from her apartment. He also testified that a housekeeper was coming to the subject apartment on a weekly basis. He also had discovered an advertisement posted on the Airbnb website that contained the tenant’s picture and pictures of the apartment.

Get Statement of Insurance Disclaimer

An insurance broker also testified to the fact that insuring a Class A multiple dwelling is less expensive than insuring a hotel. The insurance premiums for a residential apartment building are based on the number of units, whereas the insurance premiums for hotels or transient apartments are based on turnover—that is, on the number of persons staying in a given unit in a given period of time—and the fact that there is a much greater risk for injury, death, and damage from fires, as well as crime such as theft, loss of property, and other similar casualties. The broker testified that if a residential apartment is used in a nonconforming manner, like a hotel, the insurer might disclaim coverage for the incident, leaving the building owner without insurance coverage for the premises.

Subpoena Tenant’s Tax Returns

The owner was also able to get a judicial subpoena for the production of the tenant’s tax returns. Her 2010 Schedule E filed with her tax return reflected business deductions from her income from renting out the apartment, such as toiletries and shampoos, the cost of cleaning the apartment, and utilities. She also deducted $120 for laundry, $100 for insurance, and $468 as “management fees.”

The tenant also admitted on cross-examination that some transactions were not documented with or processed through Airbnb, as she negotiated them in cash and avoided paying Airbnb’s transaction fees. Therefore, it’s difficult to know how many more guests actually stayed in her apartment.

Print Out Customer Reviews from Website

In addition to ads and listings of the apartment on Airbnb, the owner also submitted “customer reviews” of the tenant’s apartment from Airbnb into evidence.

Cite Threat to Rent Stabilization System

The tenant’s current roommate testified on her behalf, stating that since August 2011 she and the tenant have shared the apartment and split the rent, but that at times house guests have rented out the third bedroom. The court ruled that her testimony wasn’t helpful to the tenant, because commercial exploitation of an apartment and concomitant profiteering threatens “[t]he integrity of the rent stabilization scheme [which] is obviously undermined if tenants, who themselves are the beneficiaries of regulated rentals, are free to sublease their apartments at market levels and thereby collect the profits which are denied the main landlord” [Continental Towers v. Freuman, March 1985].

The court emphasized that tenants are prohibited from engaging in the type of subletting activity that’s characterized by financial gain, as it unfairly deprives the owner of collecting the same profits.

Cite Security Issues

Another reason to prohibit short-term subletting relates to the issue of security. The court found that the tenant’s actions jeopardized the security of the building and the safety of the other tenants when she gave out the access code to the front door. The tenant’s actions also prevented the owner from investigating the backgrounds of these guests, as the owner testified that he does for all prospective tenants on a regular basis. This is especially important to the building owner who bears the ultimate legal responsibility for third-party criminal activity and maintaining the building in a safe manner.

Book Apartment Online

Beyond what the owner in this case did, there are additional ways you can build a profiteering case against a tenant. In one case he helped an owner win, attorney Steven Sidrane recommended the owner go through the process of booking a room from a profiteering tenant. By doing so, you can expect a booking confirmation by email, which can then be admitted into evidence at trial. After receipt of the booking confirmation, you can cancel your stay.

Inspect Apartment

Sidrane also recommends conducting a legal inspection of the apartment and looking for signs that the apartment is being used for short-term rental purposes:

• Are there no personal effects in the rooms?
• Is there no food in the refrigerator?
• Is there no clothing in the closets?
• Are there no toiletries in the bathroom?
• Are the bedroom and closet doors locked from access?

If there are signs that the apartment is being used as a business by the prime tenant, be sure to take pictures.

You should also look for items commonly provided by a typical hotel to facilitate a tourist’s stay in New York City, such as complimentary soap, wifi password information, rules for check-in and check-out procedures, a local map, and information on local entertainment venues. All these signs and the fact that guests are charged either a nightly or weekly rate all show that this arrangement through sites such as Airbnb isn’t a typical “roommate” living arrangement.

Install Surveillance Camera

If residents have complained of strangers in your building and if you suspect that one of your apartments is being used as a hostel you might consider installing a camera at the door to the apartment to document the number of visitors and the duration of their stay. Surveillance in building common areas doesn’t violate any privacy right currently recognized by New York law. And installing such cameras in public spaces is unlikely to constitute “harassment" as defined by Rent Stabilization Code Section 2525.5. The well-established rule is that individuals retain a reasonable expectation of privacy within private areas of living space—not necessarily in public spaces, such as the common areas like hallways and lobbies of residential buildings.

Once preliminary evidence is gathered, you can bring the documentation to your attorney, who can help assess the strength of your potential eviction case.